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Redistribution and social insurance

Author(s): Golosov, Mikhail; Troshkin, M; Tsyvinski, A

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Abstract: © 2016, American Economic Association. All rights reserved. We study optimal redistribution and insurance in a life-cycle economy with private idiosyncratic shocks. We characterize Pareto optima, show the forces determining optimal labor distortions, and derive closed form expressions for their limiting behavior. The labor distortions for high-productivity shocks are determined by the labor elasticity and the higher moments of the shock process; the labor distortions for low-productivity shocks are determined by the autocorrelation of the shock process, redistributive objectives, and past distortions. In a model calibrated using newly available estimates of idiosyncratic shocks, the labor distortions are U-shaped and the savings distortions generally increase in current earnings.
Publication Date: Feb-2016
Citation: Golosov, M, Troshkin, M, Tsyvinski, A. (2016). Redistribution and social insurance. American Economic Review, 106 (2), 359 - 386. doi:10.1257/aer.20111550
DOI: doi:10.1257/aer.20111550
ISSN: 0002-8282
Pages: 359 - 386
Type of Material: Journal Article
Journal/Proceeding Title: American Economic Review
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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